Throughout 2016 the value of unsold stock for small British manufacturers has grown to £4.94 billion, which now accounts for 16% of UK SME manufacturers’ total annual turnover. This is a huge amount that has built up as economic growth aims have not been met, causing greater financial problems for many companies. It is just one of the many problems that acre causing potentially fatal cash flow issues for SMEs based in many different sectors
The issue of having too much stock and being left with a lot of unsold products can occur relatively easily. All businesses intend to grow and in order to do this will need to increase their customer base, which relies on upping the number of products they are selling. To avoid running out and not being able to meet the increased demand, bulk buying or producing a lot more stock can lead to the opposite occurring. With a lot of unsold stock, this means that plenty of money will have been expended unnecessarily.
One of the other most common causes of cash flow problems for SMEs is the late payments from clients and customers. Especially for start-ups and small businesses, not receiving payments on time can mean businesses will struggle to raise enough capital to grow and reinvest in their products and services. There are solutions, such as using invoice discounting services from Touch Financial, where the amount owed from client invoices is provided up front for a small fee.
Supply and demand changes can really throw off a lot of SMEs. There will likely be seasonal demand changes which they can prepare for in advance, such as over Christmas and other holidays, but some can crop up unexpectedly. For example, after the somewhat surprising Brexit vote, certain companies will have seen demand for their services or products drop, and they may not have been financially prepared for the situation.
A lot of SMEs will have taken out small business loans when starting out, to cover the costs of goods, equipment, office space and many more overheads. These loans do need to be repaid and any that have a short repayment period can soon cause cash flow issues. An SME may find that a lot of its profits are going straight into these repayments, providing it with less money to reinvest and grow.
Plan ahead accurately to reduce the chance of these common cash flow issues affecting your SME in the future.